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FW: An article from globeandmail.com
By FABRICE TAYLOR
From Friday's Globe and Mail
If you want to know what Air Canada's most pressing problem is, ask
Fred Lazar about a recent flight he took from Ottawa to Toronto.
After being delayed once, the flight taxied down the runway only to be
delayed again. It then taxied all the way back to the terminal. The
flight crew, which had worked an earlier flight, was at the end of its
shift and they were going home. A new crew had to be flown in from
Montreal and the plane eventually took off 3 hours late.
"I would have gotten home faster if I had taken the next flight," the
business professor says.
That, in a nutshell, is what's killing Air Canada - work rules that
dictate how much, how often and what kind of work an employee has to do
in a shift, day or month. Some rules are based on safety considerations,
but the important point is that Air Canada's work force is far less
flexible, and better paid, than those of other airlines, such as WestJet
Airlines. They are, in short, not nearly as efficient.
So forget a war in Iraq and whether or not Air Canada can survive it.
No one can answer that question, and it's irrelevant anyway, because
unless Air Canada's efficiency improves, it's finished, period. The
world has changed.
If things get a lot worse, Air Canada can seek bankruptcy protection,
it can get aid from the government to see it through the process, it can
emerge with its old shareholders wiped out and most of its debt gone,
but that will only delay the inevitable. An unsustainable business is an
unsustainable business. Even as Air Canada sells assets, whether they're
planes or businesses, it only buys time. Its future expenses are rising,
because it leases back the plane or pays a third party for a service.
The trick now is for Air Canada's management and its unions to come to
an agreement, and fast. The negotiations promise to be prickly.
There are four unions and although they have shown some willingness to
move, the labour side still seems to be governed by an "us versus them"
mentality, if not among the rank and file then among the leadership.
True, the unions have legal agreements to lean on. But when Air
Canada's management says these contracts were signed in a bygone era,
they're not exaggerating. The Sept. 11 terrorist attacks changed air
travel forever, burdening airlines with huge costs. But more subtly,
think only about what the Internet has done to the airline industry. Not
that long ago, the closer to departure you bought your ticket, the more
it cost. This was meant to encourage early booking to avoid uncertainty,
which is an expensive proposition with the tight margins that come with
inflexible labour. Airlines had to be compensated for running the risk
of taking off with empty seats. Now, with the help of the Internet, seat
prices often fall as departure nears. A flexible airline has an enormous
advantage.
It's painfully obvious that air travel has changed for good. Air Canada
has to convince its employees of this, if the stunning collapse of
United Airlines and the mounting evidence here - WestJet's extraordinary
gains in market share for example - haven't done the job already. The
unions also have to be disabused of the notion that Ottawa will come to
the rescue of the airline and their job security.
Air Canada's chief executive officer, Robert Milton, said during a
conference call yesterday that he didn't want mass layoffs, which many
seemed to find hard to believe. Yet it makes sense. No CEO wants to
scale down his business. Companies that start scaling down tend to
continue scaling down until there's nothing left, because as they give
up their economy of scale, their nimbler competitors take it, increasing
their competitive advantage and accelerating the demise of their
lumbering rivals.
Far better, from Mr. Milton's point of view, is to improve efficiency
and maintain or add to capacity. He compares a successful modern
airline, with Wal-Mart: big and cheap. A large work force is in his best
interests, so long as it's more productive.
It doesn't look like Air Canada is shooting for the moon in its talks
with employees.
Basically, the airline wants to cut the cost-efficiency gap between
itself and WestJet in half, for savings of about $650-million a year.
Even after taxes and interest, judging from the latest set of
financials, that looks like it would return the airline to
profitability.
It's not reasonable to expect the workers to accept wage concessions
for nothing. Air Canada has to offer something, and it has to align
their interests with the company's. Equity isn't likely. Having a
unionized work force with a large ownership stake and the votes that go
with it proved disastrous at United. Plus, some of Air Canada's
employees -- those who came from Canadian Airlines International - have
been there and done that and came out the worse for wear.
A substantial profit-sharing agreement is the best idea. Air Canada
will have to make a case to the rank and file that it's in their
interests. They will weigh considerable work-rule and pay concessions
against future income. It worked for WestJet, whose employees don't
complain about the money they make under a similar agreement. It can
work at Air Canada if the work force embraces the idea.
Ultimately, Air Canada is going to have to convince its employees that
they either give a pound of flesh now and greatly improve the odds of
survival or they fight it and the death by 1,000 cuts continues.
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